Merger Arbitrage in the American Stock Market

Marcus Daniel Selléus & Morten Grøn

Studenteropgave: Kandidatafhandlinger


This thesis investigates risk-adjusted returns for the merger arbitrage strategy in the time period running from 1998 to 2017 using a sample which contains 4,462 mergers. This thesis finds a nonlinear relationship when investigating weekly return estimates, which suggests that the strategy has similar characteristics to a portfolio constructed of a short market index put option, long market index call option, and a long position in a risk-free asset. In particular when pricing the replicating portfolio using the "Black Scholes Merton" model the merger arbitrage strategy produces excess returns between 4 and 8 percent annually. Similar levels of excess returns are found when applying linear risk-adjustment models which demonstrates that the nonlinear model fails to properly explain the excess returns produced by merger arbitrage. Moreover, this thesis finds that 84.2% of all deals are completed successfully with significant evidence that the probability of success increases when the acquiring and target firm operates within the same industry and has its headquarters in the same country

UddannelserCand.merc.fin Finance and Investments, (Kandidatuddannelse) Afsluttende afhandling
Antal sider125